Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitor
ID: 2469951 • Letter: Z
Question
Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 16,400 monitors from an outside supplier for $205 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 16,400 monitors:
You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $56,700, but non-manufacturing costs would remain the same if monitors are bought.
Fill in the differential analysis. If an amount box does not require an entry, leave it blank or enter "0".
Hide FeedbackShow All Feedback
Check My Work Feedback
Post Submission Feedback
Solution
Keep or Replace Machine:
Skiles Coporation is a manufacturer of classic rocking chairs. The company has been using a particular sanding and finishing machine for over 10 years and believes that it may be time to replace the machine. The company is trying to decide whether replacing the old machine is a wise economic decision. The company's controller pulled together the following information on the old machine and the new possible replacement machine.
Select the relevant or irrelevant information below:
Fill in the differential analysis. If an amount box does not require an entry, leave it blank or enter "0".
Total cost of producing 16,400 monitorsUnit cost Direct materials $ 1,918,800 $ 117 Direct labor 1,066,000 65 Variable factory overhead 590,400 36 Fixed manufacturing overhead 492,000 30 Fixed non-manufacturing overhead 672,400 41 $ 4,739,600 $ 289
Explanation / Answer
Answer 1. Statement of Differential Analysis Cost of Producing 16400 Monitors Cost to Purchase 16400 Monitors Difference Cost (Savings) of Buying 16400 Monitors Direct Materials - $117 X 16400 Monitors 1,918,800 - (1,918,800) Direct Labor - $65 X 16400 Monitors 1,066,000 - (1,066,000) Variable Factory Overhead - $36 X 16400 Monitors 590,400 - (590,400) Fixed MOH 56,700 - (56,700) Cost of Purchase - $205 X 16400 Monitors - 3,362,000 3,362,000 Total Costs 3,631,900 3,362,000 (269,900) Answer 2. Statement of Differential Analysis Replace Old Machine Continue with old Machine Diffrence (Cost)/Savings with replacing Machine Revenue Proceeds From the sale of Old Machine 190,300 - 190,300 Costs: Cost of New Machine 802,300 - 802,300 Variable Cost (6 Years Worth) 260,100 433,500 (173,400) Total Cost 1,062,400 433,500 628,900 Income (Loss) (872,100) (433,500) (438,600) Select the relevant or irrelevant information below: Annual variable costs of old machine Relevant Selling price of old machine Relevant Matching lives Relevant Purchase price of new machine Relevant Accumulated depreciation of old machine Irrelevant
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.